Rising Farm Costs and Positive Dairy Forecast: A Balancing Act for New Zealand Farmers

The New Zealand dairy sector is currently navigating the dual challenges of rising operational costs and optimistic revenue forecasts. According to Mark Storey, the head of economics at DairyNZ, there have been significant annual increases in farm expenses, driven by higher tax obligations stemming from increased returns, alongside general farm working costs, notably in feed, fertiliser, and energy.

As a reaction to these cost pressures, DairyNZ has adjusted its forecast breakeven milk price from $8.41 per kgMS in the 2024/25 season to $8.68 per kgMS in the 2025/26 season. Nonetheless, the financial outlook for the upcoming season remains positive, with average payout predictions at $10.12 per kgMS, implying profitable margins for farmers despite the elevated expenses, which average $5.84 per kgMS.

Storey expresses concerns regarding the sharp rise in costs over the past year, exacerbated by global market volatility. Fertiliser prices, for instance, have soared due to international supply constraints and geopolitical factors, with phosphate and urea witnessing price hikes of 34% and 40%, respectively. Similarly, crude oil prices have surged by 17% due to Middle Eastern instability, adding to the volatility in energy markets. As New Zealand is heavily reliant on imported fuel, dairy farmers are advised to brace for potential cost increments during peak periods.

Tracy Brown, DairyNZ chair, notes the importance of strategic planning among farmers amid the backdrop of global uncertainty. By maintaining flexibility in their budgets, farmers can better manage inflationary pressures and continue to reduce debt, reinvest in their operations, and adjust personal financial practices accordingly.